A mutual fund is a pooled collection of stocks, bonds, other securities and/or financial instruments managed by a financial investment company. Some benefits of investing in a mutual fund include professional investment management, diversification of risks through a variety of investments and economies of scale. Investors achieve returns of the investments in the mutual fund in two ways: (1) by receiving income generated by the investments of the mutual fund; and (2) by sharing in the net appreciation of the investments of the mutual fund. With over $7 trillion in assets today, mutual funds are a well-respected vehicle that forms the basis of financial planning for many investors.
Shares in mutual funds are sold at net asset value (NAV) to investors. Net asset value or unit price per share is determined by dividing the total assets of the mutual fund, minus its expenses and liabilities, by the total number of shares outstanding of the mutual fund. In accordance with Rule 22c-1 of the Investment Company Act of 1940 (the “1940 Act”), the net asset value of the shares of each mutual fund is determined daily, at 4:00 p.m., Eastern Time.
A mutual fund, like many investment products, provides exposure to market and investment risk. That is, investors still bear the risk that their investments may not achieve a desired expected return and that the mutual fund may decrease in value. The net asset value of a mutual fund will, by definition, fluctuate in response to the value of its underlying investments. Accordingly, the prospective investment return at the time of investment is entirely unknown; the net asset value after purchase may go up, it may go down, or it may not change at all.
It would be desirable to have a system and method of auctioning shares of a mutual fund wherein investors may achieve investment returns on their investment by knowing in advance what the net asset value of the shares of the mutual fund will be as of a particular forward date, and buying shares at a discount to that forward net asset value through an auction process.
Communications network based systems and methods for conducting auctions are known in the art. In such systems, bidders, via a bidder computer, are able to communicate with a server computer over a communications network, such as the Internet. Residing on the server computer is a web site. A bidder, via a bidder computer, is able to access the web site, view information about the items open for auction, and submit bids on the items.
However, what is not known in the art is a communications based system and method for auctioning shares of an investment product whose net asset value can be determined at a forward date or otherwise specified. It would be further desirable to have a communications based system and method for auctioning shares of such an investment product wherein investors may eliminate most of their investment risk by purchasing a portion of the returns already generated by the investment manager and bid freely and anonymously among an investor population for those returns.